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In my California-based securities law practice, most of my clients that own a home qualify as "accredited investors" within the meaning of Regulation D which exempts private placements from federal securities registration requirements. Rule 501 of the Securities Act of 1933 defines an accredited investor as any person with a net worth (or joint net worth with a spouse) in excess of $1,000,000 at the time of purchase.

Financial advisors or stockbrokers who sell private placements are subject to the rules and standards promulgated by the Financial Industry Regulatory Authority (FINRA). According to FINRA, stockbrokers who act as selling agents for private placements are required to conduct a due diligence investigation of the offering so that they understand the nature of the investment and its risks. Also, before recommending a private placement to a particular customer, the stockbroker must perform a suitability analysis by examining the customer's overall financial situation and investment objectives. Because a home can represent an investor's largest asset, net worth alone should never be used to determine whether an investment is suitable. A customer's status as an accredited investor does not release a stockbroker from the suitability requirements.

Recently, there has been a surge in investor complaints involving private placements that were sold by broker-dealers who were acting as selling agents. Private placements that are creating a lot of investor complaints include: Medical Capital, IMH Secured Loan Fund, Provident Asset Management, Striker Petroleum and DBSI. Some of the broker dealers who actively sold one or more of these private placements are Securities America, QA3 Financial, National Securities, CapWest, Independent Financial Group, just to name a few. Please contact us if you have any questions about unsuitable private placements.

On February 24, 2010, a federal judge granted a motion to dismiss filed by Sidney Field and David Lampariello in the securities fraud lawsuit filed by the Securities Exchange Commission ("SEC"), SEC v. Medical Capital Holdings, Inc., et al., before the U.S. District Court for the Central District of California. Field was the CEO of Medical Capital Corporation and Lampariello was the company's COO. The motion to dismiss was granted with leave to amend. This means that the SEC has the opportunity to file an amended complaint in the next 14 days in order to clarify certain allegations regarding how the private placement memorandum and other offering documents were distributed to investors.

As noted in previous blog postings, Medical Capital Notes were sold to investors through a nationwide network of broker-dealers who acted as selling agents for the company. Many investors have filed securities arbitration claims against broker-dealers alleging fraud, misrepresentation and unsuitability. Brokerage firms that have been targeted by Medical Capital investors include Securities America, QA3 Financial, National Securities, CapWest and others. Click here for more Medical Capital blog postings.

Since my last two blog postings about the Medical Capital securities class action lawsuits pending in California, I have heard from several investors that were defrauded into purchasing not only Medical Capital Holdings, but also Provident Asset Management. Brokers who recommended either one of these private placement investments have a lot of explaining to do. Before recommending any investment, brokers have a fiduciary duty to exercise due diligence in determining whether an investment is appropriate and suitable for their customer. Defrauded investors interested in recouping their investment losses should consider all of their legal options, including the filing of a securities arbitration claim against their stockbroker or investment advisor that recommended the investment.

Below is a brief overview of the Provident Asset Management and Medical Capital securities fraud matters.

In addition, a consolidated securities class action is currently pending in the U.S. District Court for the Northern District of Texas against brokerage firms Next Financial Group, Inc.; QA3 Financial Corp. and Securities America, Inc. for their role in recommending these investments to their brokerage clients. Customers who were defrauded by these firms can participate in the class action or, in the alternative, pursue their own independent securities arbitration claim.

On November 13, 2009, a separate class action lawsuit was filed in the Central District of California against National Securities Corporation for their involvement in recommending Medical Capital Notes to their customers.

There are also many other brokerage firms who aggressively sold Medical Capital Notes and Provident/Shale interests to their customers who were omitted from the various class action lawsuits, including some large brokerage firms and smaller regional firms. In addition to the class action defendants discussed above, I have heard from investors who invested in Medical Capital through brokers working with Okoboji Financial Services, Redwine Securities and others that are still being reviewed.